If your discretionary trust, holds or acquires residential land in New South Wales after 31 December 2020 then your trust may be liable to pay surcharge duty and surcharge land tax if you do not amend your trust deed before 31 December 2020.
Late last year a bill was introduced into the NSW parliament proposing changes to the imposition of surcharge land tax and purchaser duty in NSW. That bill, known as the State Revenue Further Amendment Act 2020 (NSW) (“the Act”), is now law.
Trustees of discretionary trusts that are foreign persons or foreign trustees will be liable to pay surcharge purchaser duty and surcharge land tax on the acquisition and holding of NSW residential property. The recent amendments to the NSW Duties Act and Land Tax Acts mean that that the trustee of a discretionary trust is taken to be a foreign person or foreign trustee, and consequently assessed at surcharge rates, unless the trust prevents a foreign person from being a beneficiary.
To do this, the following requirements must be satisfied:
- no potential beneficiary of the trust is a foreign person (the no foreign beneficiary requirement); and
- the terms of the trust are not capable of amendment in a manner that would result in there being a potential beneficiary of the trust who is a foreign person (the no amendment requirement).
Discretionary trust deeds that comply with the above requirements before 31 December 2020 will be exempt from surcharge purchaser duty and surcharge land tax payable in respect of interests in residential property acquired or held by the trust.
Trustees of discretionary trusts are entitled to refunds of surcharge purchaser duty already paid if the terms of the trust are amended to prevent foreign persons from being beneficiaries before 31 December 2020; and
Trustees of discretionary trusts are entitled to refunds of surcharge land tax already paid in respect of the 2017, 2018, 2019 or 2020 land tax years if the terms of the trust are amended to prevent foreign persons from being beneficiaries before 31 December 2020.
Important notes
- A trust that prevents a foreign person from being a beneficiary of the trust in this manner cannot distribute to foreign persons and this cannot be changed.
- As amendments of these types have the effect of changing the beneficiaries, specific duty/tax advice should be obtained prior to execution.
- “Discretionary Trust” can include any trust under which the trustee has discretions in relation to the distribution of income and capital. This could include hybrid trusts, capital protected trusts and some unit trusts.
- The Chief Commissioner will usually require that any named beneficiary who is a foreign person be removed from the trust deed as a beneficiary in order to exclude them.
- For the definition of a foreign person, please see: Revenue Ruling G009
- For more information, please see NSW Revenue website: Foreign surcharges and discretionary trusts
If you need more information or would like to speak with our Accounting team, please contact us.
Disclaimer: The information contained in this news post is general in nature and is intended to provide a general summary only and should not be relied on as a substitute for professional advice.
